Tag Archive | IPAP

Minister Davies continues with IPAP 6

 IPAP equals “smart” industry…

The minister of trade and industry, Dr Rob Davies, before the elections, published his further Industrial Policy Action Plan (IPAP) with a theme of “smart re-industrialisation” taking South Africa to 2017.  He now returns to the same cabinet post to implement his proposals.

His department, DTI, talks in the document of integration of the region with both SADC countries and the continent as a whole, giving emphasis in SA on manufacturing rather than relying on commodity exports.

In presenting the plan, Minister Davies said the objective was to grow the economy; enhance manufacturing; and tackle poverty alleviation.    He said the new IPAP was aimed at the revitalisation of industry, with focus on competitiveness and the “labour-absorbing capacity of the manufacturing sector – especially in the traditional and non-traditional tradable and value-adding sectors of the economy.”

Tough times ahead

He warned that “ahead lay a tough, incremental process, during which there will be advances and setbacks” but he believed in the last five years the department of trade and industry (DTI) had placed the manufacturing sector in a much stronger position than before to take advantage of “emerging positive factors on the local economic scene”.
The minister said the latest IPAP has a guiding mission, which is to take South Africa’s potential for industrial growth to “greater intensity”; firstly with the infrastructure spend of R840bn over the next three years and also with localisation focusing on government procurement to support local manufacturing.    He called on all business and industry to support this process.

He named beneficiation as an important “driver” of the latest IPAP, moving away from dependency on export of primary commodities and developing its “enormous resource endowment by developing strategic partnerships in the burgeoning regional oil and gas economy.”     He said this would be a game changer.

Moving into Africa

As far as regional integration was concerned, Minister Davies said the new IPAP saw a move from primary and semi-processed products exported outside the continent, to the building of regional markets for a growing domestic manufacturing base and the manufacture of competitive products for global export.

To this end, he said, there had to be “accelerated development of a free trade area linking SADC in Central Africa with COMESA in the East.”

Minister Davies laid great stress on the need for the development of strong economic incentives for competitiveness, involving concessional industrial financing and mechanisms that promoted upgrading.    He said he saw the new Special Economic Zone (SEZ) incentives, building on the previous IDZs system, as a priority.

Customs catch up

Collective action by state institutions against the “illicit economy” – especially illegal imports – must be the subject of greater focus and action by government and DTI will continue to emphasize this, he said.

The minister continued, “We came into office in 2009 having lost a million jobs, 200 000 of those in manufacturing . . . and I think if we had not done what we have done, we would have been sitting here and talking seriously about the loss of industries across the board in this country.”

He added, “We have far too few black industrialists . . . and far too many people who are looking to go into business who are generalists; who are looking to any contracts coming from government and then subcontracting that to somebody else.”

The desire now, he said, supported by amendments to the Broad-Based Black Economic Empowerment Act and the associated codes, was to develop “deeper entrepreneurship” in the productive sectors of the economy.

Getting going

“This IPAP must belong to all of us”, minister Davies said, “from departments of state to the state utilities; from industry stakeholders and associations to organised labour and the academia”.    He concluded there was much to do in the next three years and “there was no room for complacency”.

He now returns in the new government to do just this.

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IPAP focuses on jobs

State procurement will complement IPAP

Trade and industry minister Rob Davies has launched the latest Industrial Policy Action Plan (IPAP), which covers from the present until 2015/2016  calling it “a blueprint detailing what needs to be done to industrialise the economy in South Africa”. Procurement from the state is identified as a major contributor to the necessary job creation, he says.

The new IPAP entails action plans for supporting green industries and, renewable energy efficiency, and advanced manufacturing and materials and seeks to build “a competitive manufacturing sector with strong growth and employment”.

Tariff regime to set standards

The plan is focused on programmes to promote growth in the automotive industry, metals, agro-processing, clothing, textiles, leather, and footwear areas and, most importantly and contentiously in some instances, sets a tariff regime to clamp down on illegal and substandard imports.

In presenting the new IPAP, which is a fifth in an expected line of such programmes, Davies said the South African economy had “structural problems” which resulted in over-emphasis on imports and consumer factors. It battled, he said “with high levels of unemployment which could not simply be answered by growth of the economy”.

In the light of these inherent problems, Davies said, “if we wish to make a dent on unemployment we need to boost this productive sector of the economy.  “Procurement had been identified by the new IPAP as an important element boost local production.”

“We have taken a decision, as government, that we need to make sure that our procurement policies support deeper localisation and create more opportunities for locally-based productive enterprises to produce goods and supply services to government agencies.”

State utility procurement the key

Boosting of local content through procurement in railway equipment, transmission lines, uniforms, and medicine or tablets used in public health institutions and the introduction of new designations for assistance such as valves, manual and pneumatic actuators, power and telecoms cables, and components for solar water heaters, are all part of the plan

Among other sectors identified as having potential for growth were green industries, pharmaceuticals, and agro-processing.

Department trade and industry (DTI) has launched a comprehensive research project, it said, that would develop a strategy and action plan to beneficiate selected group of minerals which included iron ore, ferro-alloys, steel, platinum group of metals, titanium, and polymers from coal, gas, and oil.

Problems still exist

Minister Davies acknowledged that high port charges, input costs such as high electricity tariffs, and the volatility of the rand still posed problems for manufacturers but he reminded his audience that the rand is highly competitive at the moment. “There is an opportunity for local production to compete more effectively against imports”, he said.

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Manufacturing fighting to survive in SA, MPs told

Manufactured goods industries struggling with rising costs.

Manufacturing Circle, CEO, Bruce Strong, told parliament that with electricity costs increasing 170% in five years but other BRICS countries decreasing such as Brazil by 28%, the SA purchasing managers index was at a three year low with a volatile rand exchange rate bring uncertainty to any investment plans. Electricity charges had to have a more gradual cost increase trajectory, he said, or there was serious trouble ahead.

Worse, municipal charges had no relation to Eskom charges and this had to be attended to, Strong added.

His statements came in hearings on the department of trade’s (DTI) industrial policy action plan (IPAP) and Strong added his voice to that of MPs that the National Energy Regulator of South Africa (NERSA) should interrogate Eskom price increases more harshly; that municipal mark-ups should be investigated and that electricity discounts had to be considered if manufacturers were to survive.

On the first day, much of the debate surrounding the progress report by DTI on IPAP progress to date. The debate  surrounded not only the usual discourse on tariffs, government departmental policy on preferential procurement (PPPFA) but on re-orientating South African exports away from traditional markets to high growth countries.

A noticeable shift to open discussion on South Africa’s port and harbour problems was very much discernible, other than the expected focus on electricity charges.

DTI’s acting deputy DDG for industrial development, Garth Strachan, told parliamentarians that the need to maintain lower port handling fees was at the moment much countered by high financing costs of port infrastructure development, particularly in the area of rail. Transnet could not disassociate its charges from the urgent need to re-equip in areas of dockside upgrading and rail facilities.

He admitted that South African port charges were amongst the highest in the world, well above global norms particularly on manufactured goods but nevertheless port pricing on iron ore and coal was below the global average. Transnet was deeply involved in increasing flow with new rolling stock which fact was welcomed by opposition members

DTI in their presentation pointed specifically to the renewable energy independent power producer procurement (REIPPP) programme where two rounds of renewable energy generation bids had been awarded with minimum levels of local content ranging from 25% to 45%.

“Green industry achievements included the IDC approval of funding of solar water heater manufacturing and the launch of the energy efficiency programme, DTI said.

Clothing, textiles, leather and footwear, canned vegetables, set top boxes and pharmaceutical products had been the subject of PPPFA revision, it was noted, and new designations for school and office furniture and cables and other capital equipment was in the pipeline. Strachan said the industrial participation programme (NIPP) was just about to be re-formulated which would “help the shift to direct offsets in key IPAP sectors” now that the NIPP policy review had been completed.

On financing, Strachan said IDC was also going to lower the cost of funding for businesses, by sourcing an additional R2 billion from the UIF for funding more labour intensive businesses and so far, IDC had claimed that jobs created or saved through funding approvals from 2009 to this year was well over 111,000.

Looking ahead with the protracted recession and slow demand for South Africa’s exports, the challenge was the exchange rate overvaluation and volatility with high relative real interest rates. Strachan said that the “user pay” principle for funding electricity build programmes was inducing massive economic shocks to the manufacturing sector.

There was also the challenge of pricing by monopolies in primary industry and supply of intermediate inputs into manufacturing. In response to questioning on breaking this control up, Strachan responded by stating that the role of large companies in manufacturing in terms of demand and supply in a relatively small to medium economy was significant and that small enterprises in most cases benefitted from the value chain.

This was bearing in mind that the capital costs of such projects were so huge that it was an unlikely small and medium businesses would proliferate under these conditions.

Over the following two days, hearings on the IPAP were conducted and interesting comment was received from the Manufacturing Circle, made up of a number of South Africa’s major medium to large manufacturing companies from a wide range of industries, some of them exporters.

Bruce Strong, CEO of Manufacturing Circle told parliamentarians that for a sector that employed some 1.7m people and accounted for 15% of GDP it was not good that the sector was stagnant and had lost 300 000 jobs because of the recession.

Municipal electricity charges did not reflect the Eskom’s price increases and it was required that NERSA had to be more aggressive on Eskom price increases. Control was required on municipal electricity price increases in particular. Generally he said, the resources of independent regulators had to be upgraded and a benchmarking analysis of their abilities looked at.

Strong called for a national “fiscal review” on the funding of public infrastructure projects. His circle of companies had responded to various of DTI’s incentive programmes but no successful application by manufacturers to the jobs fund had been reported.

There was a crisis in manufacturing, Strong said.

The Competition Commission in their submission, added IPAP did not seem to support the establishment of a sufficient number of small and medium businesses and the problem as they saw it was that “large firms or monopolies ‘owned’ their customers and spawned low levels of investment as there was no need to invest because there was no rivalry.  MPs added the point that legislated monopolies seemed to be shutting down the economy.

DTI responded  that indeed the “ bunched up” escalation in electricity price increases was hurting the manufacturing sector. But the emphasis on the supply side and Eskom’s build programme that had led to the original Multi Year Price Determinations of a 27% increase, with municipal customers being subjected to tariff loading had led to triple digit non-tariff surcharges.

Some municipalities appeared to be using electricity tariffs to generate revenue, Strachan said and Strong noted that places in Mpumalanga that were served by Eskom had electricity 20% cheaper than those served by the majors. MPs added the point that in some cases, for example Johannesburg and Tshwane, a charge of 700% above Eskom’s prices was made.

DTI recommended that an intra-governmental task team examine the impact of escalating electricity tariff increases; short term measures be applied to vulnerable sectors; there was a need for one national set of tariffs; there should be single digit price increases; carbon taxes be approached with caution in the current climate; and companies be supported in recapitalising with energy efficient technologies.

MPs commented at this stage that it appeared that radical responses were needed to be done or IPAP would become a welfare system for failed businesses and pointed again to “ridiculous” electricity surcharges imposed by some by municipalities. Such a discourse by DTI was needed.

DTI’s main platform however on the issue of a deteriorating situation was the economic situation resulting from the global recession, rather pointing to the fact that although government automotive investment programmes had been successful, the production of cars had been seriously affected by the international failing markets. Exports to the European Union remained negatively affected and there had been an increase in vehicle imports at the same time.

Strachan said that 80% of the bodies of medium and heavy commercial vehicles now have to be assembled in South Africa, with the drive train and engines to be shortly included.   DTI was extending investment support for the assembly of semi knocked down vehicles, he said, and was working with IDC on finance programmes trucks and buses but the market was, nevertheless, small.

The department said the clothing and textiles sector accounted for 120 000 jobs and 11% of manufacturing employment. The sector had a turnover of R35bn which was 2.8% of GDP and there were 2 000 active companies in the sector. While the production in clothing had declined, there had been an increase in the production of footwear.

DTI pointed to the fact that many of the MPs questions and answers in the business hearings were outside of DTI”s function or core business but it could see the danger it posed and recalled that there had been the stalled REDs initiative to secure efficient distribution of electricity.

Looking ahead, Strachan said shale gas whilst not in DTI’s sphere, it seemed quite obvious that the east and west coasts of Africa contained enormous opportunities for the oil and gas industries and also South Africa had a competitive advantage because of its mining history. South Africa should focus on localization and the lifting of constraints at ports accordingly, it was noted.

Strachan noted that there was an opportunity for Saldanha to be an oil and gas hub but progress had been slow. If shale gas became a reality it would double the potential of Saldanha.

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